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Delayed response to credit card malpractice

Banks have been more aggressive in marketing their cards

SPEND NOW, PAY LATER: Credit card usage has grown manifold in India with 42 banks issuing plastic cards.

CUSTOMER CONVENIENCE and consumer rights are the key themes in the recently released report of the Reserve Bank of India working group on a regulatory mechanism for credit cards whose usage has grown exponentially in the country in recent times with 42 banks issuing cards.Foreign and the new private banks have been more aggressive in marketing their cards than the public sector ones. They are also more likely to outsource the work relating to selling of cards as well as collection /recovery.

Undesirable practices

Of the several undesirable practices adopted by banks in the cards business, the working group has listed the following:

— Unsolicited calls to members of the public to promote cards

— Misleading promotional campaign

— Sending unsolicited cards

— Not issuing cards to certain professions such as legal and police

— Charging very high interest rates/service charges

— Lack of transparency in billing

— Use of physical coercion /harassment /intimidation by recovery agents of some banks

— Banks sharing confidential information about customers

Remedies: but only over the medium term

The group deliberated on the three broad areas of transparency and disclosure, customer rights and protection and code of conduct. There is an asymmetry of information between the card issuer and the customer. Further, much of the enormous information that cardholders receive is in legalese and in minute print.

The group wants the terms and conditions of card usage made clear in simple language that is easily understood even by lay people. All card issuers would do well to emulate the few banks that are already highlighting the most important terms and conditions. Such a document should be brief. Interest charges, another opaque area, should also be disclosed on an annualised basis.

The group recommends a high degree of professionalism for the agents/employees of card issuers who often give an incomplete/distorted picture.

For protecting customer's rights, the group recommends that henceforth card-issuing banks will obtain the specific approval of the cardholder before releasing any information about them to third parties.

Telemarketing of credit cards (and other financial products) has been in the news for mostly the wrong reasons. There has been a public interest litigation filed in the Supreme Court. While telemarketing cannot be proscribed entirely — it has a useful role if properly conducted — the time has come to place some restraints.

Following the practices that are just being introduced in the U.S., card issuing banks will be asked to maintain a "Do NOT Call Registry". Both customers and non-customers can have their names included.

Sometimes banks send cards even when the customers have not applied for one. Apart from being an invasion of an individual's rights to privacy, such unsolicited cards pose certain financial risks. For instance, they may fall into unauthorised hands.

The group, therefore, recommends that such cards should not be sent to anyone and in case an unsolicited card is activated without the approval of the recipient (who is promptly billed for the same), the card issuing bank should be compelled to reverse the charges immediately and pay a penalty without demur to the recipient amounting to twice the value of the reversed charges.

Other proposals considered by the group include group insurance coverage for card receivables, a new comprehensive regulatory law covering cards and the setting up of a self-regulatory body among card issuing banks.

C.R.L. NARASIMHAN

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